In tonight’s video, we’ll show you how to time reversals in the markets using the Volatility Box.
We had trades set up in the S&P 500, DOW, Nasdaq, Russell, Gold, and 30 Year Bond Futures. For those trading a small account, we had the same setups using micro-futures for everything but the 30 Year Bond.
Finally, we’ll take a look at SAIL, which made our trending list with yesterday’s Daily Trade Report. We were looking for SAIL to open above $26.02 within the first 15 minutes after the market open.
SAIL breached our entry point at 6:33 AM PT, triggering us into a nice trade, which moved +3.9% in our favor from our entry point.
Time Reversals in the Market
The burst of volatility after the attack on the Al Asad Airbase continues to present itself in our futures’ markets. Today, that volatility gave us an opportunity to trade at the edge.
Here’s how we systematically time reversals in the markets:
- Look for price action to make its way to a Volatility Box edge
- For our indices, this is enough for us to enter the trade and fade price action (discussed in yesterday’s video).
- For other markets, we then look for confirmation using either the Dynamic RSI, Waddah Attar or our new combined Edge Signals indicator.
- Once we receive a confirmation (if necessary), we follow our Volatility Box trade rules, using our entry line, clouds, and target line.
The key is in having edge levels that you can trust, and know to be accurate.
- Volatility Box Levels: 5 winners vs. 1 loser
- AutoChartist Levels: 0 winners vs. 5 losers
If you are looking to time reversals in the markets, it is extremely important to have levels that have proven to work repeatedly.
That’s where our edge lies, and allows us to trade smarter.
Let’s take a look to see how this worked in the marketplace today, and helped us trade the S&P, DOW, Russell, Gold and the 30 Year Bond successfully.
S&P 500 (/ES Futures):
Our entry in S&P came as price fell perfectly into our Volatility Box entry line, giving us an opportunity to go long. ForexFactory also indicated that there was no “High Impact” news, that should caution us to switch to our Conservative Volatility Box.
- First Target: +5.5 ES Points (+$275)
- Second Target: +6 ES Points (+$300)
- Total 2 Contract P/L: +$575
DOW Jones (/YM Futures):
Similar to the S&P 500, our entry in the DOW futures came when price fell into our Volatility Box zone. However, as price fell deeper into the clouds, our Volatility Box target line shifted lower. As a result, we adjusted our second contract’s target price to match our first target (1:1 risk reward).
- First Target: +45 YM Points (+$225)
- Second Target: +45 YM Points (+$225)
- Total 2 Contract P/L: +$500
Russell Futures (/RTY Futures):
The Russell did not give us the same immediate follow through which the S&P did. However, it still went on to hit both of our targets, giving us a nice winner.
- First Target: +3.5 RTY Points (+$175)
- Second Target: +4.4 RTY Points (+$220)
- Total 2 Contract P/L: +$395
Gold (/GC Futures):
With Gold, we had the luxury of waiting for our confirmation signal, using Step 3 mentioned above. Once we received our confirmation signal using the Edge Signals ThinkOrSwim trading indicator, we entered the trade.
- First Target: +3 GC Points (+$300)
- Second Target: +3 GC Points (+$300)
- Total 2 Contract P/L: +$600
30 Year Bond (/ZB Futures):
And finally, we discuss the ZB futures, which also gave us the luxury of having a confirmation signal using the Dynamic RSI and Waddah Attar indicators.
- First Target: +5 ZB Ticks (+$156.25)
- Second Target: –
- Total 2 Contract P/L: +$156.25
Nasdaq (/NQ Futures):
We also had one loser in the Nasdaq futures. The Nasdaq seemed to be the more volatile market today, and stopped us out when we had entries in the S&P, DOW and Russell (discussed above). However, this loss was contained, and we were able to focus on the other indices giving us controlled volatility.
- First Target: +20 NQ Points (+$400)
- Risk: 20 NQ Points ($400)
- Total 2 Contract P/L: -$800
Trend Trading SAIL Stock +3%
Using yesterday’s “Likely Trending” list, we had SAIL pop up as a potentially candidate for today’s trading.
Starting the morning, SAIL gave us the green light, alerting us that it had breached our Volatility Box cloud level. This was our cue to look at SAIL as a trending candidate, and use either the stock or options to get long.
Once SAIL broke above our $26.02 level in the first 15 minutes, we looked at participating in the upwards trajectory move. Our first target was based on our risk.
Yesterday’s close of $25.58 helped dictate our stop. The first target was looking for the same move in the opposite direction. For the remainder of our position, we used our Volatility Box edges as targets.
Likely Trending List – Jan 9, 2020
Using our new Stock Volatility Box Tool, we have a few different symbols that are on our “Trend Trending” list for tomorrow (January 9, 2020). Below is a sample list of just a few of those symbols.
Each of these symbols closed outside of our Volatility Box edge, and we look for them to continue to trending into tomorrow’s session, if they breach our clouds.
- Biomarin Pharma (BMRN)
- Aecom (ACM)
- Sailpoint (SAIL)
For all of our Volatility Box members with access to the tool, you can use the list above to create a game plan for tomorrow’s trading.
The key will be to look for price to breach above either the Aggressive or Conservative Volatility Box cloud edge in the first 15 minutes of market open.
Here is a comma-delineated list of the tickers above, that you can input directly into the Stock Volatility Box Tool:
If we breach above each of those respective levels, then we’ll be looking at those symbols as likely trending candidates for the day.
However, if we do not breach those levels within the first 15 minutes, then we skip the symbol and focus on areas where we have breached.
In today’s Daily Trade Report update, we show you how to time reversals in the markets using the Volatility Box.
We had 5 nice winners in the S&P, DOW, Russell, Gold and 30 Year Bond Futures for an overall P/L of +$851.25, with our loser in the Nasdaq.
When trying to time reversals in the market, it is important to note these are often the riskiest trades. Price action is generally falling swiftly in your direction, and we are trying to pick the bottom. That’s where having volatility models that you can trust is critical.
We trust the Volatility Box models, which gave us 5 winners today, instead of the 6 losers you would have had with other volatility models, such as AutoChartist.